Adex takes a beating; industry hopes for revival in 2018

It’s a nail biting finale as the end of 2017 inches closer and the suspense about growth statistics engulfs the Indian advertising industry. When it fell face down after demonetisation, it took it in its stride and began the new year of 2017 with optimism. They prayed hard for the year to close on a double-digit growth even after momentarily losing their balance on the GST highway.

As the industry waits for the moment of truth at their destination, early indicators show that they registered the slowest growth this year since 2012. The numbers are still being crunched and the writing is not on the wall; but the 5.2 per cent growth in 2012 cast a big shadow even though it’s not that bad this year. The industry that was on a high in 2015 with as much as 17.6% growth has seen a gradual decline in the last couple of years. Hit by demonetisation bang in the middle of the festive season, 2016 registered a growth of 12.5% which has now dropped further in 2017.

Some studies suggest that the industry grew by barely 10-11 per cent this year, a significant phase of low growth since the massive dip in 2012. The slow growth is due to demonetisation, implementation of the Goods and Services Tax regime.

Demonetization Blues

The industry may have secretly wished for a meteor strike as the dinosaur of demonetization raised its head. The first two quarters of 2017 witnessed slow growth owing to the immediate impact of the demonetisation initiative introduced by PM Narendra Modi. During this phase, a number of heavy spenders, including FMCG brands, tightened their purse strings and delayed promotional spending. Nearly 20-25 per cent of ad spends were affected because of the demonetisation of high value currency.

Leading FMCG company, Hindustan Unilever Limited, registered a 3.8 per cent YOY decline in ad spends in the quarter that ended on December 31, 2017. Home-grown FMCG firm Dabur deferred ad spends and reported a 20 per cent YOY decline in ad spends. P&G India also registered a 12 per cent decline in ad spends during Q3FY17 when compared to Q3FY16.

As the year came to an end, the FMCG industry saw a revival and an increase in ad spends. HUL increased ad and promotional spending by 20 per cent from Rs. 851 crore in Q2 FY17 to Rs. 1,023 crore Q2 FY18. The company spent Rs. 905 crore in first quarter of FY18 ending June 30.

Early estimates for 2017 had pegged the growth rate at around 13 per cent (Pitch-Madison Report 2016,) with hopes that the industry will inch closer to the Rs. 60,000 crore mark. The hopes of scaling the bean stalk were dashed but stability returned to the industry during the festive season. “In spite of the carry forward impact of demonetisation and GST disruption around July, the growth is not dramatically lower than previous years. It will be a great achievement if we touch double digit growth by the end of the year,” said Ashish Bhasin, ‎Chairman & CEO South Asia Dentsu Aegis Network.

Advertising expenditure during the festive season was estimated to be around Rs. 24,000 crore, accounting for nearly 30-40 per cent of the annual ad spends. “The latter part of the year saw good growth. So, my anticipation is that we will end the year on a double-digit growth,” said Bhasin.

As per forecasts by Zenith, a Publicis Groupe-run media agency, 2017 will see a growth of around 11.5 per cent and close at Rs. 53,918 crore.

Big Spenders in 2017

There was an itch in the hands of gods as the FMCG and auto sectors, the two high spenders for the advertising industry, exercised caution in 2017. Amazon India, which has emerged as the second highest spender on advertising with a budget of around Rs. 800-1,000 crore (Pitch Madison Report 2016) continued to invest in promotional activities in 2017.

According to reports, during the festive season Amazon, Flipkart and Snapdeal spent a cumulative Rs. 2,000 crore on advertising. Amazon India placed twice the number of ads on television as compared to Flipkart during the run-up to the festive season. In August and September, Amazon had 1,58,280 insertions compared to Flipkart's 77,060, as per BARC data.

Smartphone brands flaunted their deep-pockets this year. The smartphone market, which is witnessing a boom due to cheap data rates, was on a spending spree. Smartphone brands took centre stage at all the sporting events, spending heavily on sponsorships and advertisements. Vivo spent more than Rs. 350 crore on marketing this year. The brand bagged the Indian Premier League (IPL) title sponsorship for two years after replacing PepsiCo and allocated Rs. 200 crore only for IPL promotions. According to reports, the player has also spent around Rs. 80-100 crore during the festive season, double of what they had spent last year. Together, OPPO and Vivo were estimated to have spent Rs. 2,200 crore on advertising in 2017.

Rise of Free-to-Air Channels

Despite the slow growth, the industry witnessed a number of watershed events, making 2017 a significant year for the world of advertising. The rise of Free-to-Air channels brought advertisers close to a fresh set of audience. “The accessibility of media with Free to Air channels and almost free data today lets marketers have access to this completely new set of consumers/markets who were earlier very difficult to reach,” said Banerjee. According to estimates by the FICCI - KPMG Media and Entertainment Industry Report 2017, advertisers were expected to double their spends on FTA channels in 2017. “The FTA channels garnered an estimated Rs. 400-500 crore of the overall TV advertising pie in 2016; which is expected to rise to Rs. 800-1000 crore in 2017,” the report said.

A Flat Year Ahead?

Although the sector may have found the road to hell paved with good intentions in 2017, leaders are not that pessimistic. “We witnessed mid-year bumps with rollout of GST but all macroeconomic indicators suggest we are heading for a good year ahead,” said Shekhar Banerjee, Chief Operating Officer, Madison Media.

Some forecasts say that 2018 looks bleak. The Zenith study pegs the growth at 8.4 per cent for 2018, dashing hopes for a double-digit growth. The Forrester Predictions for 2018, forecast a flat year for advertising globally. The report notes that, “This is not an advertising budget crisis but simply changing priorities.” As per the predictions, CMOs will focus their efforts and monies on revitalizing customer experience, synchronising loyalty programs to customer expectations, understanding digital platform algorithms and advancing Martech to deliver individualised experiences at scale. This is because, “CMOs can no more defend underperforming media spends focused on customer acquisition, as churn rates escalate or stand idly by as digital platforms threaten to disintermediate their relationship with customers,” the report noted.

Most industry insiders and analysts said that there is no reason to be so pessimistic. Banerjee said that the accessibility of media with FTA channels and year round sporting events will fuel a strong growth in Adex as we get into 2018. “Looking at the recent trends, we should expect lower sales promotion and BTL spends from marketers and higher ATL spends towards demand creation. There will be an increased focus towards performance marketing, even by CPG, given the growing strength of online grocery as a sales channel,” he added.

The advertising industry has pinned its hopes on digital as it’s driving impressive growth. "Earlier, all media would grow at similar rates but now different media are growing at dramatically different rates. For example, digital advertising will grow at 25-30 per cent while English print will be under pressure. In 2018, we can expect a growth of around 11-12 per cent and not as low as 8-9 per cent,” said Bhasin.